Affordability? Where did it go? COMPOUNDING. Affordability is a function of the relentless mathematical concept of “compounding.”
Stabilization of the RATE does not mean prices go down; they simply grow far more slowly from a higher, more painful baseline.
Here is the actual math.
Compounding Cost of a $100 Market Basket (2017–2026), was up two dollars per year during Trump‘s first term, then up 5 1/2 dollars averaged per year during each of Biden‘s four years.
And then the compounding of the “affordability problem“ of the Biden years: (even at only 3% now, not the 9% of the last administration) is essentially nearly irreversible, mathematically. Biden‘s years sported a $23 increase from $108 to $131. Now, a normal 3% increase on top of of $130 — is nearly $4 per year.
Compounding is how East Coast 200 year “old money” became what it has become. Of the 3000 US citizens with a net worth of $300 million or more, well over 1000 of these are the product of compounding, and at least 1500, 40-50% “compounded old money $300 millionaires,” when wealth is split amongst family.
Einstein is credited with calling compound interest the most powerful force or “miracle” in the universe. Warren Buffett has compared compounding to a growing snowball rolling down a long hill. Charlie Munger’s “first rule of compounding” is essentially: do not interrupt it unnecessarily—protect the process so time can do the heavy lifting. Benjamin Graham described the “magic of compounding returns” as one of the great mathematical discoveries.
But compounding works both ways!
• The basket that cost $100 when Trump took office in 2017 had risen to $107.72 by the time he left. By the end of Biden’s term (Jan 2025), that same basket cost $130.82. This was a 21.4% increase during the Biden presidency.
• Even with inflation moderating to around 3% (a much lower RATE than Biden’s peak of 9%), the actual dollar cost continues to climb, of course. By January 2026, the basket is projected to cost $134.74.
• The Compounding Problem: Because the base price is now so high ($130.82), a “normal” 3% inflation rate adds nearly **$4.00** to the cost of the basket in a single year. In comparison, during Trump’s first term, a similar inflation rate would have added only about $2.50.
Compounding, the bad way.
What can work quickly to control prices that escalated by gargantuan amounts over the last five years? Lowering energy costs, lowering taxes, and decreasing the high cost of a regulatory system that crushes small business. These put more money in the pocket of consumers, and decreases the high cost of transportation for workers and the supply chain, and reducing heating/cooling costs. “Affordability.”
Longer term, other than a recession which causes layoffs, it is a long process to create what feels like “affordability“. The increase of take-home pay for American workers relative to the inevitable increase of cost of goods, is the only viable means of changing the pain point.
